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February 18

How Uber Eats Dubai Grew 400% In One Year

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Awad Makkawi

In our article on Total Addressable Market we explained that Uber is not in the taxi service market.


In fact it's in the location services market which includes delivery services.


Uber has 5 key revenue segments and of growing importance is the Eat segment which clocked $3.6 billion in Q3 2019 alone. 


This represents Ubers second largest revenue segment after rides and as such exploring the model behind is useful knowledge for founders. 


That's why in this article, we're going to look at specifically how Uber Eats Dubai works.


Lets go!

Uber Eats revenue Q3 2019

Uber Eats Dubai As Per Ex GCC Manager Damien Drap

Initially started as Uber Fresh in 2014 and later renamed to Uber Eats, it is now the largest food delivery business outside of China.


It functions as a 3 sided marketplace facilitating interaction between these key stakeholders:


  • Restaurants i.e. supply side
  • Customers i.e. demand side
  • Drivers i.e. delivery side

The Uber Eats model, value proposition and functional framework has proven to be a massive success.


In a statement to Arabian Business in 2018 ex GCC Manager Damien Drap stated that: 


"Uber Eats Dubai was doubling the size of its business every 6 months and we've grown 400% in the past 12 months."


In fact, Europe Middle East and Africa (EMEA) represented the second highest (after the US) revenue generating region for Uber bringing in $534 million in Q3 2019.

Uber Eats Revenue Per Geographical Region

Customers can read menus, place orders, pay and track orders right within the app or the web browser.


Payments are made via the users registered card within the platform. Restaurants get exposure to a customer base and upon making a sale, pay a fee to Uber Eats. Drivers get paid for making deliveries.


Here's how Uber describes themselves:

About Uber

Now:


How big exactly is this market opportunity that Uber Eats is tapping into?

Uber Eats Market Size And Potential

Here's why Uber is betting big on this segment:


  • Eats represents 22% of Gross Bookings
  • Global Total Addressable Market: $2.8 Trillion
  • Service Addressable Market: $795 Billion
  • A run rate even faster than that of the rides segment

Take a look at this from Ubers 2020 investor presentation:

Uber Eats Market Opportunity - TAM

Not only that but Uber Eats also has a bunch of operational and financial advantages too.


In truth most startups won't have such strengths, but there's nothing wrong with learning and applying what is possible.


Have a look.

Operational Advantages And Defensibility

  1. 1
    Access to World Class Marketplace Tech 
  2. 2
    Worldwide Operations
  3. 3
    Brand Awareness 
  4. 4
    Large Active Userbase 

Financial Advantages And Defensibility

  1. 1
    Larger Average Oder Size 
  2. 2
    Lower Insurance Costs
  3. 3
    Leverage Platform Costs 
Uber Eats Dubai growth drivers

As a result of these advantages Uber Eats was able to experience rapid growth due to leveraging key Uber assets including:


  • The existing massive Uber rider customer base meant customer acquisition cost were much smaller. In fact, Uber went on to add Uber Eats right within the Uber app to make the conversion of riders into eaters much more seamless.
  • Underlying technology, logistics and operational excellence was already streamlined and functional
  • Existing driver network to complete the deliveries
Uber Eats customer conversion

Uber Eats Dubai 3 Sided Marketplace In Play

Customers pay for a few line items within their purchase.


First theres the price of the meal or snack. Then theres the delivery fee aka convenience fee. There's an added charge for peak time orders, tax fees and sometimes, when applicable, a cancellation fee.


Initially the delivery fee was a flat $4.99  regardless of order size.


However, it now ranges between $2 and $8 depending on the market they operate in or it follows a dynamic pricing model based on distance from the restaurant. 


For Uber Eats Dubai the range is now between 4 AED and 12 AED and users can filter restaurant suggestions according to delivery fee.


In the case of restaurant owners:


They pay Uber Eats anywhere between 15% to 30% on every fulfilled order depending on the market that the service is operating in.


There's also a marketing and advertising fee of $350 to $500 depending on the desired requirements such a photography, brand campaigns and email marketing.


For the drivers:


Uber Eats pays per delivery based on a pickup fee, a drop off fee and a mileage fee


Additionally, there are other payments that Uber Eats makes to drivers too that come out of the Adjusted Net Revenue i.e.:


Driver Incentives, Excess Incentives and Driver Referrals.


In fact:


Cumulative payments to a driver sometimes exceeds cumulative revenue from a driver as a result of the incentives.

Uber Eats Dubai driver incentives

Here's An Example Of How The Unit Economics Work Per Delivery

Let's look at a hypothetical example:


Say you order a meal worth 35 AED and the distance from the restaurant is 10 km. 


Total paid (excluding VAT) = 35 AED + 10 AED Delivery or Convenience Fee = 45 AED


Uber Eats Dubai revenue from the restaurant = 30% of 35 = 10.5 AED


Total revenue generated = 10 + 10.5 = 20.5 AED


Driver charges = Pick up + Delivery + Per mile charge = 2.5 + 3 + 7 = 12.5 AED


Net revenue for Uber Eats Dubai = 20.5 - 12.5 = 8 AED

Uber Eats Distribution Channels and User Engagement

So we mentioned that Uber Eats had a clear advantage in leveraging Ubers customer base and the driver base.


But how did they grow their restaurant base so quickly?


As of 2018, Uber Eats had 220,000 restaurant partners.


One way they are growing this side of their marketplace is through the introduction of self-sign up to become a restaurant partner.


Reducing restaurant on-boarding time and the friction involved with signing up means that more and more restaurants are willing to join the platform.

Uber Eats Restaurant Network Growth

On the other hand for user engagement, the Uber Eats platform uses machine learning technology to offer suggestions of restaurants that the user would be interested in based on previous purchasing behavior.


This provides customers with a variety of options to choose from that can be delivered or picked-up and the location tracker offers up suggestions near you.


Furthermore,


To improve user engagement and retention Uber rolled out rewards and subscription programs such as Uber Rewards and Uber Pass respectively.

Uber Eats Dubai location based suggestions

Uber Eats Key Metrics And Maintaining Competitive Advantage

As noted from Ubers investor report for 2019 some of the main metrics are:

  1. 1
    Gross Bookings: this means tracking metrics such as number of Monthly Active Platform Consumers (MAPCs), the conversion numbers for orders i.e. platform liquidity/number of trips, number of restaurant partners and exclusive partners, restaurant and customer churn rate, 
  2. 2
    Take Rate: improving operational efficiency to drive down costs and thereby increase the net margins. UberEats are also looking at higher margin monetization opportunities such as running ads on their platform
  3. 3
    Revenue and Adjusted Net Revenue: fulfilled deliveries per driver, average time per delivery,  driver churn, total incentive paid

With these metrics in mind the question to ask is how does Uber Eats spend its revenue to maintain its advantage?

  • Sales and Marketing: UberEats parent company Uber Tech spent over $1 billion in 2019
  • Continuous Tech development and R&D: In Q3 2019 Uber Technologies spent $755 on research and development in an effort to continuously drive innovation and maintain market leader status
  • Acquisitions and divestments: the aim is to be the #1 or #2 in every market they operate in. As a result we have seen acquisitions such as Careem (including Careem Eats) for $3.1 Billion to become a wholly owned subsidiary of Uber, Divestment of India Eats to Zomato and exiting the South Korea market.
  • Advanced Technologies Group segment: is responsible for development and commercialization of autonomous vehicles, ride sharing tech and Uber Elevate. Uber raised $1 billion to utilize to this effect with deep integration with key partners Toyota, Denso and Softbank.
Uber Eats Acquisitions and Divestments

Key Takeaways

Uber Eats is present in over 400 cities around the world and profitable in 40+ with Uber Eats Dubai being one of the fastest growing markets.


The speed of growth and ability to scale is the result of leveraging the strength of the Uber brand, its customer base, driver network and existing technology and operational infrastructure.


Their model revolves around lower customer acquisition costs, a tech algorithm that recommends relevant restaurants, quick delivery times and financial discipline.


As CEO Dara Khosrowshahi said "We recognize that the era of growth at all costs is over."


How are you acquiring your customers?


Ensure your distribution channel aligns with your margins.


Optimize your cost structure.


Tweak your revenue generation.


It's not just about growth.


But healthy growth.


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